Comair dips into Canada account

The Canadian Cabinet has approved a $250 million loan from the so-called Canada Account for a past transaction involving 10 Bombardier CRJs to Cincinnati-based Comair. The move marked the first application of a new $1.2 billion credit facility established by the Canadian government specifically to fund regional jet sales. It also relieved Bombardier of its exposure to an interim private loan issued at the point of sale.

Typically, so-called corporate account activities funded by Export Development Canada (EDC) serve as the primary mode of financing support for foreign buyers or lessors of Canadian products. Because the EDC manages its own treasury and raises funds in private financial markets, the federal government assumes no risk for typical corporate transactions. Under the EDC-administered Canada Account, however, the government absorbs most of the risk, a point of particular sensitivity within international trade circles.

So far Canada has backed only seven transactions using the Canada Account, including three to Chinese banks and one to a Romanian nuclear reactor supplier. The other two involved U.S. airlines Northwest and Air Wisconsin. In 2002 the WTO ruled illegal the Canada Account’s below-market-rate loan to Air Wisconsin. Soon after the ruling, Canada issued similar terms to Northwest, ostensibly to match low-interest loan guarantees from Brazil for Embraer regional jets.

Established in large part to help companies in developing countries gain access to equity funding for purchases of Canadian products, the Canada Account ostensibly backs transactions that do not meet EDC risk thresholds for a variety of reasons, including its size, market conditions, the borrower’s creditworthiness and/or financing conditions. Comair parent Delta Air Lines apparently qualifies, particularly after Moody’s Investors Service lowered its credit rating from a Caa to a Ca, its second weakest category.